Stm Grp. Regulatory News (STM)

 21 December 2011

STM Group Plc

("STM" or the "Group")

Trading Update

STM Group Plc (AIM:STM), the cross border financial services provider, announces a trading update for the 12 months ending 31 December 2011.

Trading update

STM's business is the custodianship and administration of clients' assets within a variety of entities including companies and trusts in various jurisdictions; pension schemes; unit-linked life assurance policies; and foundations. The Group's income is primarily made up of fixed fees and time based administration fees.

Overview for the second half 2011

Revenue for the second half of 2011 is expected to be below management's expectations and therefore the Group now anticipates that it will achieve revenues for the full year of around £10 million and profit before tax of approximately £750,000. Given the relatively fixed cost base of the business, the fall in anticipated revenue will have a direct impact on the profitability of the business.

The fall in revenue is a result of the general softening of transaction based revenues generated in our core trust work as general economic uncertainty in the Eurozone has led to a reduced level of activity in the Gibraltar CTS business. While these events are disappointing the Board remains confident of the Group's prospects, though all costs will continue to be monitored carefully.

As indicated in the interim results of 20 September 2011, a number of initiatives in STM Pensions and STM Life had been expected to contribute revenues in the fourth quarter of the year. Frustratingly, while good progress has been made in business development and the market propositions remain exciting, the revenues achieved have not as yet matched our expectations.

Core Corporate and Trustee Services (CTS) division

CTS income currently accounts for 75% of the Group's revenue and is split evenly between Jersey and Gibraltar. STM Jersey's revenue is typically derived from non-domiciled individuals investing in the UK market; this revenue stream has held up well during the year and performed in line with management expectation. The Board is confident that its Jersey operation, headed by a strong management team, will continue to perform as predicted going into 2012.

Gibraltar's CTS revenue stream is significantly more focussed on the UK expatriate that has moved to or invested into the European marketplace; management has seen a significant downturn in transactional business as a result of the Eurozone crisis. Many clients are holding back from instructing acquisitions or sales until there is more certainty in both the financial and currency markets, resulting in less time based fees being generated. Additionally, the Group did not see the usual level of activity preceding the UK Government's autumn statement.

Management has recognised that it will be slow for the Gibraltar CTS business to return to "normal" levels of time based fees and is therefore instigating a number of cost-reduction measures so as to ensure margins for 2012 improve. This will ensure profitability is in line with budget going into 2012.

On a positive note the CTS business has received a number of instructions from new clients, in Africa and India in particular, as a result of business development activities in these areas. It remains management's intention to reduce the reliance on the UK market for generating new clients.

STM Swiss has struggled to attract new business and therefore has suffered from lack of critical mass. In recent months, management has taken the decision to retrench the Swiss operation into an outsourced facility that allows STM to keep a presence in Switzerland whilst saving some £0.40 million of costs moving into 2012.

STM Pensions

The Board has previously noted that the timing of the predicted increased revenue stream was hoped to begin to contribute in the fourth quarter of 2011. Frustratingly, the anticipated increase in revenue remains slower than expected however has the hallmarks of being a substantial revenue and profit contributor to the Group going forward.

The cross border and pension's transfer market is in its infancy with STM being seen as a market leader and innovator in this area. The fact that Malta, in which STM has a presence and a number of HMRC approved pension schemes, is increasingly becoming the jurisdiction of choice for the exporting of both UK and EU pension schemes, has resulted in STM building business relationships with some very significant world-wide distribution networks. In addition, the fact that Malta is an EU member state and thus benefits from the Pensions Directive and double tax treaties reinforces Malta's pension offering as compared to other non-EU jurisdictions. Management expects that this will result in more distribution networks approaching STM Pensions to act as their provider.

STM's pension division has yet to benefit, in revenue terms, from this business development. Given the scalability of the traditional Qualifying Recognised Overseas Pension Scheme (QROPS) product and the anticipated launch of some new pension products that are currently going through the approval process with the Maltese regulator, it is expected 2012 will be the year that STM's pension division substantially changes the revenue mix of the STM Group.

STM Life

Similarly, STM Life continues to lag behind the revenue expectations of the Board. Generation of linked long term policies (Life bonds) from the UK market remains slow, however, initiatives to build further IFA distribution have been undertaken in the latter part of 2011.

On the positive side, STM Life now receives a steady flow of smaller life bond policies from its Swedish distribution partner and a new partner in Norway will commence business with STM Life in January 2012. Both initiatives will contribute to giving STM Life the critical mass it needs to ensure profitability in 2012.

STM Life expects to launch a further product in early 2012 as an alternative to the traditional UK pension's products that target high net worth individuals. The product is currently with the Gibraltar Regulator for approval and it is believed it will generate significant interest with the UK IFA market.

Other trading divisions

Trading in the other divisions, being insurance management, advisory and the Spanish office remain broadly in line with management's expectations.

Financial position

As a result of initiatives undertaken in the first half of 2011, cash collection remains a priority across the Group with some £9.4 million being collected in the 11 months to November 2011.

Commenting on the trading update, Colin Porter, Chief Executive Officer at STM, said:

"The second half of 2011 has not performed according to management's expectations, with a variety of factors contributing to the anticipated shortfall in revenue when compared with management's expectations, which is expected to have a mirror impact on profitability. The Eurozone crisis is definitely a contributing factor to a reduction in our time based fees, and it is up to STM's management to cut its cloth accordingly. Measures are being taken to reduce costs in this area so as to increase margins in 2012.

"I am confident that 2012 will be a good year for STM; there are significant opportunities in both the Pensions and Life divisions, both of which are very close to concluding innovative product and business relationship opportunities that will transform their revenue streams."

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Notes to editors:

STM is an international financial services group which is listed on the AIM Market of the London Stock Exchange and made its first acquisition in 2007. The Group specialises in estate and succession planning and wealth structuring for high net worth individuals and their families. STM's clients include entrepreneurs, celebrities, sports stars and affluent retirees.

STM's strategy is to grow organically and by acquisition, in particular looking for businesses and jurisdictions which provide a complementary offering to the Group. Today, STM has operations in Gibraltar, Spain, Jersey, Switzerland and Malta. The Group is also looking to expand through the development of additional products and services that its ever more sophisticated clients demand.

In order to achieve this, STM has, for example, incorporated a Gibraltar Life Insurance Company, STM Life plc, which provides life insurance bonds - wrappers in which a variety of investments, including investment funds, can be held. STM has developed a specialist international pensions division which specialises in QROPS, QNUPS and EFRBS. The growth in Jersey, through the acquisition of Zenith, has coincided with the introduction of the Jersey Foundation legislation which has resulted in a growing number of enquiries and resultant business.

Further information on STM Group can be found at www.stmgroupplc.com